Canadian Supreme Court shortens time to collect foreign arbitration awards

The Supreme Court of Canada’s May decision in Yugraneft v. Rexx Management Corporation leaves many foreign arbitration awards, including those obtained by U.S. companies against Canadian businesses, with a relatively short shelf life. The court affirmed Alberta’s two-year limit for collecting arbitration awards, a time frame that could make it difficult to enforce awards against debtors who have spread their assets over multiple jurisdictions, making the assets difficult to find and mandating enforcement in a host of jurisdictions.

“For a countrythat holds itself out as arbitration friendly, the Supreme Court of Canada’s decision in Yugraneft is a bit of an embarrassment—not as a matter of judicial policy but as a matter of statutory drafting,” says Joel Richler, a litigation partner at Blake, Cassels & Graydon. “Still, the decision is a slap in the face to the international arbitration bar and inconsistent with Canadian attempts to promote the country as an arbitration venue.”

Although experts say the Supreme Court based its ruling on proper legal analysis, some argue there should be no difference between the limitations applicable to arbitration awards and those applicable to judgments.

“The theory behind the choice of arbitration in international cases is that awards should be easier to enforce than judgments because they are consensual and governed by treaty,” he says. “Now we’ll have to tell our international clients that if they obtain an award against a Canadian company, they’ll have less time to enforce it than they would if they had a judgment from a court.”

Controversial History

Yugraneft finds its origins in a nearly $1 million award in Yugraneft’s favor against Rexx by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. But it was only three years later that Yugraneft applied for recognition and enforcement of the award under Alberta’s Arbitration Act. Rexx objected to the application because it was time barred.

The case garnered considerable attention in the international arbitration community. Both the London Court of International Arbitration and the Canadian Arbitration Congress, sensitive to any decision that would impact the enforceability of awards, intervened in the Supreme Court.

Ultimately, the ruling turned on the interpretation of Alberta’s Limitations Act. The legislation provides for a two-year limitation period from the date of the award on obtaining a “remedial order,” including an enforcement order where the right arises from foreign law, for all proceedings brought in Alberta. But Alberta also allows 10 years to enforce domestic and foreign judgments or orders for the payment of money.

In Yugraneft, the question was whether any order enforcing the arbitration award would be based on a foreign “judgment or order for the payment of money” that invoked the 10-year limitation, or whether it was a general remedial order with a two-year prescription.

A unanimous Supreme Court concluded that an international commercial arbitration award was not a judgment or court order for the payment of money because it was not so defined by the Limitations Act; it was not part of a state’s judicial system; it arose from the will of the parties; and it was not directly enforceable without an appropriate court order. Accordingly, the two-year period applied, and Yugraneft’s application was out of time.

Reputation Question

Though some argue Yugraneft will change the perception that Canada is arbitration friendly, Barry Leon, an international arbitration partner at Perley-Robertson, Hill & McDougall, says the decision won’t necessarily impair its reputation.

“To the contrary, Yugraneft reinforces Canada’s reputation as arbitration friendly because it continues the Supreme Court’s record for providing pro-arbitration direction to lower courts in Canada and pro-arbitration guidance to courts globally,” he says. “The reasons are clear that, consistent with the New York Convention (see “Convention Enforcment”), enforcing jurisdictions must provide foreign arbitral awards with treatment as generous as that provided to domestic arbitration awards.”

“The New York Convention leaves procedural matters, like time limits, up to the enforcing jurisdiction,” he says. “And there’s nothing in the New York Convention that requires any jurisdiction to treat foreign awards more favorably than domestic awards.”

However, Leon believes that legislative action is necessary.

“The power to set a longer time limit should lead jurisdictions like Alberta to rethink their short time limits, as it is an easy way to help a province’s companies do business internationally,” he says. “Making it easier to enforce international arbitration awards in a province reduces the risks to the other party in the underlying business transaction, and this will result in lower costs for Canadian companies doing business internationally.”

Patchwork Application

But Orlando Silva, an international trade partner at McCarthy Tétrault, says U.S. companies should not assume, as many commentators have, that Yugraneft applies throughout Canada.

As the Supreme Court pointed out, although Canada is the contracting state to the New York Convention, the provinces are free to set their own time limits.

“In the case of federal states, local time limits are to be determined by the law of the enforcing jurisdiction within the federal state,” the court stated. “In those cases, the relevant unit will be the enforcing jurisdiction within the Contracting State, not the Contracting State in its entirety.”

A critical component of the Supreme Court’s reasoning, Silva maintains, is the wording of the New York Convention, which was appended to Alberta’s enforcement legislation.

“By contrast, Ontario has ratified the Convention but not appended it to its enforcement legislation, and therefore the Yugraneft reasoning may not apply,” he says. “In fact, you could make a reasonable argument that foreign arbitration awards are not subject to any limitation period at all in Ontario.”

Most importantly, however, Silva says no one should jump to conclusions about Yugraneft’s scope without carefully analyzing the legislation in the relevant province.